Government and Banking, Who Rules?

The events of the last two weeks have presented enormous 'moral' hazards for
governments and the banking industry. When we call them moral hazards we are
not talking about biblical morality, but the principles behind government [Democracy]
and banking [Profit and Prudence].

The
effective takeover of the major banks, on both sides of the Atlantic, has brought
the interests and politics of government into banking, a place ill suited to
such governance. You may well say that the government shareholding does not
represent such interference. If that is the case then there was no point to
the purchase of such a shareholding, except the hope of an eventual profit.

Bankers, driven by prudence in lending, will still have an aversion to lending
after their bailout by government and see the injection of capital as profit
opportunities for bankers in safe investments, a 'cushion', which by
definition, would exclude broad based lending to an economy in recession, where
capital and interest payments will become riskier as economies slide down into
what could become a depression. The injection of capital may well save the
banks but their role, as source of funds for the economy, will still be reduced
considerably.

If governments do take their seat on the board and tell bankers to
be less prudent and lend as a broad source of funds for the overall economy then
you will have politicians in banking and profit and prudence out of banking
[as is happening now in the UK]. That will lift the economy though. Without
such a step, the broad economy will pay a heavy price to bankers, many
of whom the taxpayers have just saved.

If bankers continue to rule lending absolutely, then government will continue
to be their servants.

So there is the moral dilemma! But it is more than that, for the duty of government
and now bankers, is to help the economy, lending the money they have had virtually
given to them, by the Fed, that has kept them in existence, is it not? The
sight of a shrinkage of credit card credit is bringing this issue down to street
level!

But then the U.S. will have made one step towards the more Socialistic model
of Europe, where the same will have to apply, or else the saving of the banking
industry will be at the expense of the taxpayers under their charge. Clearly,
the job of central banks is to maintain price stability and growth in
the economy. That surely overrides the profit & prudence priorities of
the banks, of which they are now part owners?

China's communistic model of total control of business and banking [without
democratic principles there to interfere?] works to support the burgeoning
Chinese economy and will be made to do so in the future. This is a country
that rules bankers, commerce and everything else in that country. But Europe
and the U.S. have principles that will not be changed [except temporarily?].
This is why the Chinese government has confirmed that growth in China, in the
future will be 9%+.

But in the U.S. and Europe the separation of banking and government is absolute,
with the independence of the Federal Reserve and [more complicated] the European
Central Bank. Or is it? Surely, needs force a change in these principles
if the economy is at risk?

As the government and the Fed rescue the banks and take equity positions in
them, who will rule afterwards, bankers or government? The answer will
point the way forward for the economies of the developed and emerging worlds.
The Fed must re-invigorate the economy, as their obligations demand, but their
minority holding in the banks emasculates their investment and simply makes
them hope for future profit, in a few years time?

With paychecks reducing or disappearing, house values falling and likely to
fall for the next year as well, money needs to flow right out into the streets
of the middle and lower classes, on which the economy has and will depend.
If it does not get that far, then the vultures will feast. Surely that should
be part of the process of saving the economy too? The day after the announcement
of the availability of 'unlimited funds' to the financial institutions and
its guarantee to ensure no financial institution will fall, the Dow Jones tumbled
again realizing that the recession is headed towards us like a train still,
with the vultures in its slipstream. So the Fed must do more still.

Bankers credit criteria will kick in and prevent them from releasing loans
to the general economy so must it fall too, as the markets are now telling
us?

So who will rule the economy - Politicians or bankers? It was Lord Rothschild
who said give him control of money and he cares not who makes the laws.

The battle is upwind and we can smell it!

Sadly the moves made to date by central bankers have not addressed the underlying
problems simply tended to the symptoms. This begs the question, are they capable
of making the system work after healing its disease or is it crippled?

These questions have become more than important now, they have become critical,
for we have seen the crash, and we still smell the fear, the fragility, the
lack of trust and confidence. It is no longer a danger it is on us and must
be rectified. Until our skepticism is removed by the reality of burgeoning
growth stemming from the States, we will remain suspicious.

Is your wealth effectively structured to avoid the pernicious
effects of the regulatory climate that we have moved into? It should be and
we can help you to do so professionally and within the law. Please contact
us for any help regarding this at: gold-authenticmoney@iafrica.com.

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